401k Business Funding: How to Avoid Penalties and Save Thousands
March 5th, 2014
Published by: marcocarbajo
401k Business Funding:
How to Avoid Penalties
and Save Thousands
Do you plan to use retirement funds to start or buy a
business? Discover how to avoid paying large penalties
with this proven 401k business funding strategy.
For more information go to =>
401K Business Funding: It
Can Cost You or Save You
February 20, 2014 By Marco Carbajo
Thinking about taking money out of your 401(k) to start a
Becoming an investor and owner of a business does have many
benefits but you should be very cautious about using your nest
egg. More importantly there are significant legal steps you
need to know so you don’t end up making costly mistakes.
It’s called a Business Directed Retirement Account.
This business funding strategy is nothing new; it has been
around for decades. It allows you to make your 401(k) plan an
investor in your own business. Have you heard of the federal
government’s Employee Retirement Income Security Act? It
allows people to roll over existing 401(k) plans into a plan
created for a new business.
Just like your 401(k) invests in publicly traded stocks; you’re
basically doing the same thing but into a private stock which
is your own business. For thousands of startups, this funding
strategy works. According to FRANdata, 4,050 businesses –
60% of them franchises – were launched with retirement
Now keep in mind, using retirement funds to start a business
is not a do-it-yourself transaction. It is extremely complex
and requires the help of a financial planner or thirdparty retirement-plan administrator. The process requires
complying with a long list of IRS regulations and avoiding
making certain prohibited transactions.
It requires setting up a C Corporation and a brand new 401(k)
customized specifically for this type of strategy with all the IRS
rules that go along with it. The penalties for not complying with
the rules are hefty to say the least.
Pulling money out of your 401(k) isn’t simply a decision of
writing yourself a check. Do this wrong and you risk paying
a 10% penalty if you are under the age of 59 ½ plus incomes
taxes anywhere from 35%+ depending on your current tax
Let’s put this in perspective.
If you pull out $100k out of your 401(k) it can cost you $31k of
that money in penalties and income tax. So instead of $100k
you now have only 69k to invest in your new business. Ouch!
Not too worry, the good news is rather than losing thousands
of dollars of your hard earned money there is a better way.
This strategy makes sense if you plan to invest $50k or more
of retirement funds in a business. With a business directed
retirement account you can start a business relatively debtfree, increasing the chances of you becoming profitable much
faster. Through this funding strategy you can be the investor
and owner of your business.
With 401(k) business funding you have the unique ability
to base decisions as either an investor or business owner
depending on what you believe is in your best interest. While
it may seem risky – starting a business is risky no matter how
Need expert advice setting up a business directed
retirement account? Submit your contact information and
a BDRA funding specialist will contact you within 24 hours.
March 5th, 2014
Published by: marcocarbajo
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About the author
Marco Carbajo is a business credit expert, author, speaker,
and founder of the Business Credit Insiders Circle. He is a
business credit blogger for Dun and Bradstreet Credibility
Corp, the SBA.gov Community, and All Business.com. His
articles and blog; Business Credit Blogger.com, have been
featured in ‘Fox Small Business’,'American Express Small
Business’, ‘Business Week’, ‘The Washington Post’, ‘The San
Francisco Tribune’,‘Alltop’, and ‘Entrepreneur Connect’. You
can also find Marco on Google+.
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